Kganyago rebuffs public protector report in court
• Mkhwebane lacks the power to amend the Constitution • Remedial action constrained by issues investigated
Public Protector Busisiwe Mkhwebane’s recommendation to amend the Reserve Bank’s constitutional mandate had nothing to do with her investigation into the apartheid-era Bankorp “lifeboat”, and was only aimed at stripping the Bank of its powers to maintain price stability, the Bank said on Tuesday.
Bank governor Lesetja Kganyago, applied to the High Court in Pretoria to review and set aside sections of Mkhwebane’s report on the lifeline granted to Bankorp, which Absa subsequently acquired.
Kganyago argued she had no power to amend the Constitution; had gone beyond the ambit of her investigation; was encroaching on the legislative functions of Parliament; and irrationally expected the Bank to take on the responsibility for socioeconomic development.
The process she followed was also procedurally unfair, Kganyago said. “The public protector’s remedial action is constrained by the conduct she investigates. She has no power to take remedial action on matters she has not investigated,” he said.
In a strongly worded affidavit, Kganyago said Mkhwebane’s investigation “had nothing to do with the Reserve Bank’s powers under section 224 of the Constitution”.
Mkhwebane — in addition to recommending that Absa pay back more than R1bn Bankorp received in assistance during apartheid — has said the Bank’s constitutional mandate to protect the value of the currency should be amended to one that focuses on the socioeconomic wellbeing of citizens.
She directed Parliament to initiate processes to amend the Constitution accordingly.
Kganyago told Business Day it was not clear what the public protector meant by “socioeconomic wellbeing”.
“It could be so wide-ranging and beyond the scope of what a central bank can and should do.”
The Bank, he said, already did that through protecting the buying power of the rand, ensuring currency availability and striving for a stable financial system, among others.
“All of these activities are informed by in-depth analysis and research. It would be counterproductive to divert the Bank’s policies away from these important socioeconomic objectives in order to achieve outcomes over which the Bank has no influence.
“It also begs the question as to which institution would then be responsible for controlling inflation,” Kganyago said.
On Monday, Deputy Finance Minister Sfiso Buthelezi heaped additional pressure on the Bank, saying inflation targeting — one of the tools the bank uses to preserve price stability, which it officially adopted in 2000 — was bad for emerging economies such as SA. “It’s the policy of the day so we’re committed to it and will implement it but it’s not cast in stone,” he said at a gathering at the Gordon Institute of Business Science. “We set this 3% to 6% then, under different economic conditions. Is it still relevant now? Is it a policy for all seasons?”
In his affidavit, Kganyago defended the inflation targeting framework again, stating it was generally agreed that stable and low inflation provided the
foundation for high and sustainable real growth. “Most jurisdictions, including our own, have given their central banks an autonomous role in protecting the value of the currency because this form of long-term price stability may, at times, come into conflict with a government’s shorter-term goals.”
Kganyago pointed to events in the immediate aftermath of the report’s release last week.
Other than a slump in the rand:dollar exchange rate and foreign investors dumping R1.3bn in government bonds, analysts inundated deputy governor Daniel Mminele with calls for clarity on the Bank’s mandate and the possibility that it could be changed.
Two days after the release of the report, S&P Global Ratings analyst Gardner Rusike asked for a meeting with the Bank to discuss its response to the report.
“The threat of a further downgrade of the country’s long-term currency rating cannot be overstated. Financial stability in any country hinges on its sovereign rating, which reflects its creditworthiness,” Kganyago said.